PS26/1 and the Future of BNPL

With the publication of Policy Statement PS26/1: Regulation of Deferred Payment Credit (Unregulated Buy Now Pay Later); the Financial Conduct Authority (FCA) set out its final rules for regulating Deferred Payment Credit (DPC), commonly know as Buy Now Pay Later (BNPL).

In a rapidly evolving consumer credit landscape, the FCA has taken a decisive action to uphold robust consumer protection standards to match innovation.

This landmark policy introduces a formal regulatory framework for the rapidly evolving and growing BNPL sector. The FCA provides clarity for lenders while ensuring consumers benefit from stronger consumer protections standards.

This reform marks a pivotal moment in the UK consumer credit market, transforming BNPL from a largely unregulated flexible payment offering into a regulated form of consumer credit designed to balance innovation, accessibility and regulatory oversight.

BNPL

BNPL or DPC refers to interest-free and fee-free credit that allows consumers to pay for goods or services instalments, over 12 months or fewer and in no more than 12 repayments.

These products have become increasingly popular in the UK, growing from approximately £60 million in 2017 to over £13 billion in 2024, reflecting the rapid adoption of these flexible payment options.

While these products offer convenience and short-term financial flexibility, the FCA identified potential risks in this unregulated market, including:

Limited transparency about repayment obligations;
Inconsistent affordability checks; and
Insufficient protections for consumers experiencing financial difficulties.

PS26/1 addresses these concerns by bringing BNPL within the FCA’s regulatory perimeter.

Key Reform Areas Under PS26/1

Bringing BNPL into the Regulatory Perimeter

The FCA has introduced formal regulation for BNPL-style lending. From 15 July 2026, third-party lenders offering BNPL will be required to operate under FCA authorisation or the Temporary Permissions Regime.

These rules apply where a third-party lender finances a purchase through a merchant and the credit is interest free, repayable within 12 months and in 12 or fewer instalment payments.

The regulation is designed to be proportionate and targeted, allowing the sector to continue innovating while ensuring appropriate regulatory oversight of lenders.

A notable exception applies to merchants offering their own instalment arrangements directly to customers, where no third-party lender is involved. Such arrangements, and the brokering of those agreements, are expected to remain outside the scope of FCA regulation.

Strengthening Consumer Protection and Transparency

A key priority for the FCA is ensuring that consumers receive clear and timely information before entering into BNPL agreements.

Under PS26/1, lender must provide:

- Key product information before entering into the agreement, helping customers understand costs, obligations and risks;
- Clear communication throughout the lifecycle of the credit agreement; and
- Additional information where repayments are missed or financial difficulties arise.

These changes aim to ensure that borrowers can make informed decisions about short-term credit, avoiding situations were payment flexibility inadvertently leaders to financial difficulties.

Ensuring Sustainable and Responsible Lending

Affordability is a central pillar of the FCA’s new framework. DPC providers will be required to carry out proportionate creditworthiness assessments before offering instalment agreements.

This requirement means that lenders must evaluate whether consumers can reasonably meet repayment obligations without experiencing financial hardship. This aligns BNPL with existing consumer credit standards. By doing so, the FCA aims to reduce the risk of over-borrowing across multiple providers, accumulation of missed payments and late fees and creation of long-term financial stress for borrowers.

Ensuring Sustainable and Responsible Lending

The FCA’s broader Consumer Duty framework will apply to firms offering BNPL. This requires firms to comply with the Consumer Duty and ensure they deliver good customer outcomes, design products that meet consumer needs, communications are clear, fair and not misleading and appropriate support to customers is provided.

Consumers will also gain access to protections such as the Complaints Handling Rules and the Financial Ombudsman Service (FOS) for dispute resolution.

Preparing for Regulation Day

With the policy now finalised, attention turns to implementation.

Key Milestones include:

15 May 2026 – Firms can apply to enter the Temporary Permissions Regime
15 July 2026 – Regulation formally begins (“Regulation Day”)

Firms currently operating in the BNPL space must ensure their systems, controls and compliance frameworks are fully aligned with FCA expectations before the new regime takes effect.

This will involve:

Applying for FCA authorisation or entry into the Temporary Permissions Regime
Updating creditworthiness and affordability assessment processes
Implementing new disclosure and communication standards
Embedding Consumer Duty obligations across operations

Why PS26/1 Matters

The FCA’s decision to regulate BNPL credit agreements represents one of the most significant changes in the UK consumer credit market

It reflects the reality that digital credit products have become mainstream payment methods for millions of consumers across the UK, and this innovation must be matched with strong consumer safeguards. The FCA’s emphasis is on ensuring transparent, responsible lending that supports both consumer well-being and sustainable market growth.

By bringing BNPL within the regulatory perimeter, the FCA aims to preserve the convenience and financial flexibility that consumers value, while ensuring the market operates with the same standards of accountability as other consumer credit products.

Balancing Innovation and Protections

PS26/1 signals the FCA’s commitment to fostering a modern financial ecosystem where innovation and consumer protection evolve together.

For lenders and fintech providers, the new framework offers regulatory certainty and level playing field. For consumers, it delivers clearer information, stronger protections and fairer lending practices.

As Regulation Day approaches, the UK’s DCP market will enter a new era of responsible, transparent and sustainable credit.

How can Complyport Help?

As the FCA introduces a new regulatory framework for DPC and BNPL providers under PS26/1, firms operating in the consumer credit ecosystem must ensure their business models, compliance frameworks and customer communications align with the new requirements. Complyport supports lenders, fintech providers, retailers and credit intermediaries in navigating regulatory change with confidence. Our specialists provide practical guidance to help firms prepare for the new regime, embed compliant processes and meet the FCA’s expectations under the Consumer Duty and the evolving consumer credit framework.

Our experienced team can help you with:

Regulatory Change Impact Assessment: Assessing how the PS26/1 framework will affect your firm’s existing BNPL products, help identify regulatory gaps and develop structured implementation plans ahead of Regulation Day.
Authorisation and Temporary Permission Regime Support: Guiding firms through the process of obtaining FCA authorisation or entering the Temporary Permissions Regime, including preparation of regulatory applications, governance documentation and compliance frameworks.
Creditworthiness Framework Reviews: Reviewing and strengthening your affordability and creditworthiness assessment processes to ensure they meet FCA expectations for proportionate and responsible lending.
Consumer Duty Alignment: Supporting the design and review of product governance frameworks, including fair value analysis to ensure offerings deliver good outcomes for customers.
Vulnerable Customer Frameworks: Assisting firms in developing policies and operational procedures to identify and support customers experiencing financial difficulty or vulnerability.